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Nu Skin (NUS) More Than Double in a Year: Will Momentum Stay?

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Nu Skin Enterprises, Inc. (NUS - Free Report) looks well positioned owing to focus on innovation as well as efforts to strengthen sales leaders and expand the customer base. These were reflected in fourth-quarter 2020 results, with the top and the bottom line increasing year over year. Also, quarterly earnings beat the Zacks Consensus Estimate. Results mainly gained from increase in sales leaders and customer base.

Moreover, the company is optimistic about momentum in 2021, driven by impressive product pipeline, robust digital efforts along with steady improvement in customers and sales leaders. For the first quarter of 2021, the company projects revenues of $610-$640 million that suggests an increase of 18-24% year over year. Quarterly earnings are anticipated between 65 cents and 75 cents per share, indicating significant growth from the year-ago quarter’s levels. Markedly, shares of Nu Skin have surged 106.8% in the past year compared with the industry’s growth of 29.3%.

Let’s delve deeper.

Factors Working in Nu Skin’s Favor

Nu Skin remains focused on empowering sales leaders and customer base through product launches and engaging technology platforms among other initiatives. Moreover, the company is conducting a number of promotional seminars online amid the pandemic. Additionally, Nu Skin rolled out its Velocity sales compensation plan as well as enJoy rewards program over the past three years. These programs are doing well and continue to drive growth in sales leaders and customers. In the fourth quarter of 2020, sales leaders were up 29% year over year to 70,435, while Nu Skin’s customer base increased 34% to 1,557,302. Sales leader’s growth was driven by successful introduction of Boost and Nutricentials products.

A shift to work-from-home and at-home trends has led to increased online shopping, which presents a unique opportunity for the company’s business. With these macro trends, Nu Skin is making significant investments in the digital platform to build a socially-enabled business. In this regard, the company rolled out its personal recommendation app, Vera in 2020.  By the end of 2021, Nu Skin intends to expand the Vera experience to add a wellness journey that will be connected to other parts of its portfolio. Further, management is on track to introduce its digital ecosystem, Empower Me.

Moreover, the company is leveraging its technology to scale up business, grow customers in new segments and expand its affiliate business to younger demographics. Recently, Nu Skin announced the buyout of 3i Solutions — an innovative company — which develops and produces ingredients for consumer markets with the help of proprietary encapsulation technologies. Such technologies will help Nu Skin in creating new product forms and boost performance of its formulations in beauty and wellness.

Nu Skin’s long-term strategies stand on three key pillars — Products, Programs and Platforms. To this end, management is encouraged about the company’s global introduction of beauty device system — ageLOC Boost (2020). The recently introduced device recorded sales of nearly $100 million in the second half of 2020. Moreover, management expects to expand its customer reach via the launch of Boost and Nutricentials products in the first half of 2021. Further, Nu Skin expects to unveil new products in the remaining half of the year. Apart from product launches, Nu Skin’s well-knit product strategies and customer retention programs have been driving growth in several market locations.

Wrapping Up

Nu Skin’s gross margin has been contracting year over year for a while now due to increased freight costs. This was witnessed in the fourth quarter, with gross margin contracting from 75.9% to 74%. Apart from the abovementioned factor, a geographic mix shift also caused the downside. In its fourth-quarter earnings call, management highlighted that the abovementioned downsides are likely to keep putting pressure on gross margin in 2021.

Nevertheless, we believe that the abovementioned upsides are likely to help this Zacks Rank #3 (Hold) company tide over such hurdles and remain in investors’ good books.

Some Solid Cosmetic Picks

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The Estee Lauder (EL - Free Report) carrying a Zacks Rank #2, has a long-term earnings growth rate of 10.7%.

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